We all know that Al Capone was eventually nabbed on income tax evasion charges . . .

[xiphias]

. . . but I didn't realize, until just now, that that was because that probably was the most serious thing he was doing.

One estimate has Al Capone making $100 million per year on beer ALONE in several years, not counting liquor, rackets, or anything else.

In the Twenties, the top rate on income tax was a staggering 91%. Capone may have made a quarter BILLION dollars in PERSONAL profit in the 1920s, giving him a tax liability of, oh, tens of millions of dollars. Tens of millions of 1920 dollars.

That's above and beyond the business taxes he wasn't paying.

Wow. Forget the murder and corruption charges -- the income tax evasion WAS the most destructive thing he was doing!

Comments

[bikergeek.livejournal.com]

A lot of liberals like to crow about how in years past the top marginal tax rate was 91%. Even as late as the 1970s it was somewhere around 74% IIRC. Supposedly this is some big sign of how egalitarian society was in years past, or something.

Reality was, nobody except lottery winners or the stupid paid those rates. There was an entire industry of accountants and tax planners who specialized in helping high earners take advantage of loopholes and tax shelters to get their taxable incomes down to somewhere around the 30% tax bracket. In fact, it wasn't uncommon for some very high earners to owe zero income tax by the time the accountants got done massaging their taxable income numbers--and anger over *that* fact was what led to the Alternative Minimum Tax.

Yes, the Reagan tax reforms of the 1980s cut the top marginal rate about in half--but also eliminated most of those loopholes. (Loopholes that have, unfortunately, since been added back across two decades of both Republican and Democratic Presidents and Congresses.)

So, essentially, his big sin was not hiring a small army of accountants to help him manipulate his assets and income.

[mattblum.livejournal.com]

When you're making money doing illegal things like importing and selling alcohol during Prohibition, it's a bit difficult to find accountants who can massage the books quite enough to make them pass legal muster.

[bikergeek.livejournal.com]

hm. It's certainly easy enough in the present day; it's called "money laundering". Although to be sure, Prohibition was the first real American experience with empire-sized financial gains from crime, so maybe they weren't quite that advanced yet. Capone *was* pretty much the test case for this sort of thing. Still, it'd take some pretty serious hubris to live that kind of lifestyle off of your ill-gotten gains and think the IRS wasn't gonna catch up to you.

[(Anonymous)]

You do realize the conviction could easily have been appealed if Capone's attorney was smart. You see the statute of limitations on Capone's filing was over and he was tried too late for evading most of the taxes. Also the part in the movie the Untouchables where the judge switches the jury is true.

[dancing-kiralee.livejournal.com]

I've heard it argued that FDR ended Prohibition so he could tax the alcohol industry... and that this was, in fact, a major part of the government's biggest problem (that being that they needed more money - to deal with the depression - and had less - because of the depression).

I've never had a chance to check it out.

Kiralee

[xiphias.livejournal.com]

The first part is true. The second part is less clear -- I would say that the Depression happened because of the confluence of the Dust Bowl (caused by ecologically unsound overfarming) and the stock market crash, caused by a, well, tech stock bubble.

[dancing-kiralee.livejournal.com]

Hmm... I think you may have misread what I was trying to say in the second part.

I'd say the Depression was the result of 'natural causes' or of the mismanagement of natural resources-to me economic fluctuations, like tech bubbles, ara a function of natural law, albeit a natural law about human behavior; so the stock market crash would also be the result of 'natural causes'. I've also heard it argued that is was caused by insider trading (not illegal at the time) and/or bad accounting practices, both of which were changed as a result. That would correspond to mismanagement-I realize the economy is not generally categorized as a natural resource, but it is, like the tech bubble, a function of natural law...

What I'm trying to say is that the soil will always be there; and likewise, people will always trade, so the economy will always be there. Laws can be created to regulate it, but they can't control it.

So the government's role in the depression is similar to it's role with Katrina. They weren't responsible for stopping the storm from occurring, but they were responsible for dealing with the results. Similarly, in the Depression, the government was reacting to a natural disaster; it's job was to deal with the results.

Admittedly, because the natural disasters the government was responding to in the Depression were the result of mismanagement they also had the job of figuring out how the relevant natural resources had been mismanaged and making sure it didn't happen again. Hence the laws against insider trading, and the creation of GAAP (Generally Accepted Accounting Practices).

Put it this way... before the stock market crash of 1929, they didn't know that insider trading was destructive. You can't make laws against destructive behavior patterns if you don't know they are destructive.

So, the government was not responsible for the Depression; rather they were responsible for responding to the Depression.

Given the job of responding to the Depression, the government was faced with several problems. Of these, I think the biggest problem was that they needed lots of money and had little. Of course I'm sure other people would argue that the biggest problem was restoring confidence, or helping displaced farmers, or figuring out why the economy had failed and fixing it. Or they might (as you appear to have done) lump all these together and say the governments biggest problem was the Depression itself.

I thought I'd made my position on this clear by placing my definition of "biggest problem" in parenthesis after the term...

I don't think we're in disagreement. I agree the Dust Bowl and the Stock Marget crash were important causes of the Depression (although maybe not the only ones). And I agree that neither of those had anything to do with Prohibition.

What I'm wondering about is how much of an effect being able to tax the alcohol industry had on government finances. I'm fairly certain it wasn't enough to pay for the New Deal. Yet I've heard that it was a massive amount - perhaps enough to make a significant contribution.

If that's the case, then Prohibition was very destructive, in the same way, and for the same reasons, as Al Capone's tax.

In some sense, Al Capone is the test case. Al Capone caused corruption and violence; Prohibition created a culture of lawlessness and corruption (Al Capone is the example.) Al Capone engaged in tax evasion so extreme it may have been more damaging than the corruption and violence. Prohibition created an entire industry that could not be taxed, (again Al Capone is the example). Failure to tax the alcohol industry didn't cause the Depression, but severely hampered the governments ability to respond-meaning that the lack of tax revenue from alcohol may have been more damaging to society than the lawlessness and corruption. As Al Capone, so Prohibition.

The test would be finding out what effect taxing alcohol had on government finances... something I've been curious about but never looked up. Until then it's all just speculation.

Kiralee